What National Insurance is, and what it is not
National Insurance (NI) is a tax on earnings. Employees pay it on their wages, the self-employed pay it on their profits, and employers pay their own share on top of the wages they pay out. It is collected by HMRC alongside Income Tax, but it is a separate charge with separate rules.
The money goes into the National Insurance Fund, which pays for the State Pension and some benefits, with part of it going to the NHS. It is not a savings account in your name: today’s contributions pay for today’s pensions. What you do build up is a record. Each year in which you pay enough NI, or receive NI credits, counts as a qualifying year, and the number of qualifying years you have decides your State Pension.
Three things make NI different from Income Tax, and they explain most of the surprises people meet:
- It only applies to earnings. Pensions, rent from property, savings interest and dividends are not charged NI, even though they can be taxed.
- It is worked out per pay period for employees, not over the whole year. There is no end-of-year rebalancing like there is for Income Tax.
- The rate falls for higher earners. Above the upper limit, employees pay 2% rather than 8%.
NI rates and thresholds are the same in England, Wales, Scotland and Northern Ireland. Scotland sets its own Income Tax bands, but not its own NI.
How employees pay, band by band
As an employee you pay Class 1 NI. For 2026/27 the first £12,570 a year is free of NI. This is the Primary Threshold, and it matches the Personal Allowance for Income Tax. Between £12,570 and £50,270, the Upper Earnings Limit, you pay 8%. On everything above £50,270 you pay 2%.
Like Income Tax, the bands work in slices. Getting a pay rise that takes you over £50,270 does not change the rate on the money you already earned. Only the pounds above the line are charged at 2%.
- First £12,570Below the Primary Threshold£0.00
- £12,570 to £45,000£32,430 at 8%£2,594.40
- Above £50,270Nothing earned in this band£0.00
Here is what the same rules give across a range of salaries:
The person on £150,000 earns six times as much as the person on £25,000 but pays about five times as much NI. That is the 2% upper rate at work: above £50,270, each extra £1,000 of salary adds only £20 of NI.
How NI works on your payslip
Your employer does not work out NI on your annual salary. They work it out on each payment, using thresholds for that pay period. For 2026/27 these are:
| Pay period | Lower Earnings Limit | Primary Threshold | Upper Earnings Limit |
|---|---|---|---|
| Weekly | £129 | £242 | £967 |
| Monthly | £559 | £1,048 | £4,189 |
| Yearly | £6,708 | £12,570 | £50,270 |
Because each pay period stands alone, a month with a bonus or overtime is charged on that month’s pay only. Nothing is evened out at the end of the year. With Income Tax, HMRC can refund you if you overpaid across the year. With NI, what was deducted in the month stays deducted, unless your employer made a mistake.
This can work in your favour. If a bonus takes one month’s pay above the monthly upper limit of £4,189, the part above it is charged at 2% rather than 8%.
- Normal month: £3,000(£3,000 − £1,048) × 8%£156.16
- Bonus month: £8,000(£4,189 − £1,048) × 8% + (£8,000 − £4,189) × 2%£327.50
- Year: 11 normal months + 1 bonus month11 × £156.16 + £327.50£2,045.26
- If the same £41,000 were paid evenly(£41,000 − £12,570) × 8%£2,274.40
Company directors are different
Directors normally have NI worked out on an annual earnings period, adding up pay across the year. This stops directors cutting NI by paying themselves in one large lump. The yearly thresholds in the table above apply.
NI and Income Tax together
On its own, NI looks simple. The interesting part is how it combines with Income Tax. The chart shows how much of each extra pound of salary goes in Income Tax plus employee NI, for someone in England, Wales or Northern Ireland on a standard tax code.
At £50,270 two things happen at once. Income Tax rises from 20% to 40%, and NI falls from 8% to 2%. The NI drop softens the jump, so the combined rate goes from 28% to 42%, not 48%.
Between £100,000 and £125,140 the Personal Allowance is withdrawn, £1 for every £2 you earn. That creates an effective Income Tax rate of 60% in this band, and 62% once NI is added. NI does not cause this trap, but it is why pension contributions through salary sacrifice are so valuable here (see section 7).
If you are self-employed
Sole traders and partners pay Class 4 NI on their taxable profits through their Self Assessment tax return. It uses the same £12,570 and £50,270 thresholds as employees, but lower rates: 6% on profits between the two, and 2% above. It is paid with your Income Tax, in your balancing payment by 31 January and through payments on account.
- Class
- Class 1
- Main rate
- 8%
- How it is paid
- Each payday (PAYE)
- NI for the year
- £1,394.40
- Class
- Class 4
- Main rate
- 6%
- How it is paid
- Self Assessment
- NI for the year
- £1,045.80
Class 2 NI used to be a flat weekly charge for the self-employed. Since April 2024 nobody has to pay it. If your profits are at or above the Small Profits Threshold (£7,105 for 2026/27), you get a qualifying year for your State Pension automatically, without paying anything.
If your profits are below £7,105, you can choose to pay voluntary Class 2 at £3.65 a week, which is £189.80 for a full year. That buys a full qualifying year, which is one of the cheapest ways to protect your State Pension (see section 8). Some people abroad, or in certain jobs, cannot use Class 2 and pay Class 3 instead.
Employed and self-employed at the same time?
You pay Class 1 on your wages and Class 4 on your profits, each with its own thresholds. If the total looks too high, HMRC applies an annual maximum and refunds any excess after the year ends.
What your employer pays on top
Your payslip shows your NI, but your employer pays a second, larger charge: secondary Class 1 NI. For 2026/27 it is 15% of your earnings above £5,000 a year (the Secondary Threshold), with no upper limit. It does not come out of your pay, but it is a real cost of employing you, and it is one reason employers like salary sacrifice.
- Employee NI(£30,000 − £12,570) × 8%£1,394.40
- Employer NI(£30,000 − £5,000) × 15%£3,750.00
Some employees cost their employer less:
- Under 21s and apprentices under 25: employers pay 0% on their earnings up to £50,270.
- Veterans: in the first year of their first civilian job after leaving the armed forces, employers pay 0% up to £50,270.
- Employees past State Pension age stop paying their own NI, but their employer still pays.
Most employers can also claim the Employment Allowance, which takes up to £10,500 a year off their employer NI bill. A limited company whose only employee is a director cannot claim it.
Pensions and salary sacrifice
With salary sacrifice, you agree to a lower salary and your employer pays the difference into your pension. Because NI is charged on salary, the sacrificed amount escapes NI for both of you. Pension contributions taken from your pay in the ordinary way get Income Tax relief but no NI saving.
- Your Income Tax saved£3,000 × 20%£600
- Your NI saved£3,000 × 8%£240
- Your employer’s NI saved£3,000 × 15%, which some employers add to your pension£450
For a higher-rate taxpayer the NI saving is smaller (2% instead of 8%), but the Income Tax saving is larger (40%). In the £100,000 to £125,140 band, sacrifice can restore your Personal Allowance, which makes it one of the most valuable things you can do with your pay.
A change is planned for April 2029
The government has announced that, from April 2029, salary-sacrificed pension contributions above £2,000 a year will be charged NI. Sacrifice below that limit, and ordinary tax relief on pension contributions, are not affected. Nothing changes for 2026/27.
Your NI record and your State Pension
The full new State Pension is £241.30 a week for 2026/27, about £12,548 a year. You normally need 35 qualifying years on your NI record to get the full amount, and at least 10 to get any of it. Between 10 and 35 years, you get a proportion: each year is worth about 1/35 of the full amount, roughly £6.89 a week or £358 a year, for life.
You get a qualifying year in any of these ways:
- Earning enough as an employee. If you earn at least the Lower Earnings Limit (£129 a week, about £6,708 a year) in a job, the year counts, even though you pay no NI until £12,570.
- Self-employed profits at or above £7,105, or paying voluntary Class 2.
- NI credits, which are given free in many situations: claiming Child Benefit for a child under 12, receiving Universal Credit, Carer’s Allowance or Carer’s Credit, being on statutory sick, maternity or paternity pay, or looking after a grandchild under 12 for a working parent.
- Voluntary Class 3 contributions, at £18.40 a week, or £956.80 for a full year.
A full year of Class 3 costs about £957 and adds roughly £358 a year to your State Pension, so it pays for itself in under three years of retirement. That is why topping up gaps is often worth it. It is not always worth it, though: if you will reach 35 years anyway before State Pension age, an extra year adds nothing. Check your forecast on GOV.UK before paying.
- Any timeCheck your NI record and forecast
Use the Check your State Pension service on GOV.UK. It shows every year, and which ones have gaps.
- Within 6 yearsFill gaps from recent tax years
You can normally pay voluntary contributions for the last six tax years.
- 5 April 2027Last day to fill gaps in 2020/21
After that date, the 2020/21 year normally can no longer be topped up.
Who pays less, or nothing at all
- Under 16s do not pay NI.
- People over State Pension age stop paying employee NI from the date they reach it. Class 4 stops from the tax year after you reach State Pension age.
- People earning under £12,570 from a job pay no NI, but still get a qualifying year if they earn above £6,708.
- People with two or more jobs get the thresholds in each job separately. Two jobs paying £10,000 a year each mean no NI at all, because neither reaches £12,570.
Your employer uses a category letter to tell the payroll system which rules apply. You can see it on your payslip. The common ones are:
| Letter | Who it is for | Employee pays |
|---|---|---|
| A | Most employees | 8% / 2% |
| M | Employees under 21 | 8% / 2% (employer pays 0% up to £50,270) |
| H | Apprentices under 25 | 8% / 2% (employer pays 0% up to £50,270) |
| C | Employees over State Pension age | Nothing (employer still pays) |
| J | People who can defer NI because they pay it in another job | 2% on all earnings above the threshold |
| V | Veterans in their first civilian job | 8% / 2% (employer pays 0% up to £50,270 for a year) |
| X | People who do not pay NI, such as under 16s | Nothing |
Recent changes to National Insurance
NI has changed more in the last few years than in the previous decade. If an article or old payslip shows different numbers, this is probably why.
- 6 January 2024Employee main rate cut from 12% to 10%
- 6 April 2024Employee rate cut to 8%; Class 4 to 6%
Compulsory Class 2 for the self-employed ended at the same time.
- 6 April 2025Employer NI rose to 15%
The Secondary Threshold fell from £9,100 to £5,000 and the Employment Allowance rose to £10,500.
- 6 April 2026Rates and main thresholds unchanged
The Lower Earnings Limit rose to £6,708, the Small Profits Threshold to £7,105, voluntary Class 2 to £3.65 a week and Class 3 to £18.40 a week.
- April 2029 (planned)NI on salary sacrifice above £2,000 a year
Common mistakes worth checking
- Wrong category letter. If you are over State Pension age and still see NI deducted, your letter should be C. Ask your employer to correct it; overpaid NI can be refunded.
- Comparing NI with an annual calculation. Monthly NI on irregular pay will not match a yearly estimate. That is how NI works, not an error.
- Assuming a pay rise costs you 40%. Below £50,270 the combined rate is 28%. The higher rate only touches pounds above the line.
- Gaps in your record. Years abroad, low-paid years and years caring without claiming a benefit can leave gaps. Check before the six-year deadline passes.
- Missing Child Benefit credits. If you stopped Child Benefit because of the High Income Child Benefit Charge, the lower-earning parent can still register for it to get NI credits, with no money paid out.